Wednesday 21 January 2015

Ezion Holdings

Kim Eng on 21 Jan 2015

  • Top conviction BUY in sector. Improving FCF & earnings stability in FY15 not contingent on oil prices.
  • Liftboats may expand into other offshore jobs. Contract wins near-term catalysts.
  • Higher SGD/USD mitigates our 1-4% cut to FY14E-16E EPS for contract timing adjustments. This results in an unchanged TP of SGD1.93, still at 9x FY15E P/E.
Liftboats don’t hinge on oil’s recovery
We expect Ezion to secure at least two liftboat contracts in 1Q15, going by industry newsflow. Our confidence was lately reinforced by signs of positive regional demand for liftboats despite oil’s rout. Modern liftboats may start to contend for other offshore jobs, thanks to their improved capabilities, versatility and efficiency.

Strongest visibility & stability
Ezion is our top sector pick. We believe its 42% slide from its peak of SGD2.02 has priced in prior concerns of deployment delays. Among asset owners under coverage, it arguably offers the strongest FY15E-16E job visibility and earnings resilience on strong contract coverage and exposure to more-stable maintenance demand. We understand most of the five vessels that are due for renewal this year can be recontracted at similar or higher rates. We see upside from potential new contracts, as opposed to risks for the rest of our stocks. Such near-term catalysts do not hinge on an oil-price recovery.

High headline net gearing of 1.0x as at end-3Q14 should be addressed by improving cash flows from the deployment of nine additional units in FY15E. These could swing Ezion to positive FCF. For now, we trim FY14E-16E EPS by 1-4% for minor contract adjustments. This is mitigated by a higher SGD/USD exchange rate of 1.30 vs 1.25. All in all, our TP is unchanged at SGD1.93, still at 9x FY15E P/E, its 5-year mean. Reiterate BUY.

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